The Energy Performance Certificate (EPC) was introduced in England and Wales in August 2007, initially as a part of the home improvement pack (HIP) for domestic properties with four or more bedrooms. This was later extended to smaller properties, and from October 2008 an EPC was required in the rental sector on new tenancies and was valid for ten years. The legislation governing HIPs was eventually abolished but the EPC framework is still in place.
An EPC is required for properties when they are constructed, sold or let. The certificate provides details on the energy performance of the property and what you can do to improve it. This information is important to people assessing the suitability or desirability of a property, if they were looking to buy it, but is also an increasingly critical factor in the buy-to-let market. Prospective tenants, particularly students or young professionals, have environmental performance much higher in their selection criteria than previously, and hence a good EPC rating for a property can help a landlord let a property and also find a responsible tenant, who will respect and appreciate the rating and work with you to maintain or improve it.
What is an EPC?
Essentially, an EPC rates how energy efficient your property is, via a scale running from A (most efficient) to G (least efficient). An EPC assessment is a constructive exercise, in that you are left with a report that indicates how you could improve your rating by carrying out certain repairs or modifications around the property.
The rating awarded on an EPC is known as a minimum energy performance rating, and hence is usually an indicator that you can do more to improve your rating. From April 2018 it is a requirement for any property rented out in the private rental sector to have a minimum rating of E1. This applies to new lets and renewals of tenancies as of April 2018 and will apply for all existing tenancies from 1st April 2020.
The obvious benefits of having a good EPC rating on your rental property are that it becomes more marketable, both as a property with a reduced carbon footprint and in terms of reduced energy bills for the tenants. You can also look at an EPC as a worthwhile investment, as it remains valid for 10 years and of course maintains its value to you throughout this time by keeping the property marketable, so it is worth putting the work into ensure your property achieves the best rating possible.
General rules of an EPC
Before looking into the details of the requirements of an EPC assessment, it is important for landlords to understand the critical nature of this legislation and the new rules imposed in April 2018. It is now unlawful to rent a property with a rating lower than E, unless it is subject to an applicable exemption, and any breaching of this can leave the landlord open to a civil penalty of up to £4,000. In essence, this means a landlord can no longer rent out a property with a current rating of F or G after 1st April 2018, without first carrying out suitable improvements and getting the property rated again.
One exemption to this, which applied from October 2016, is if a landlord can prove that the prescribed improvements to reach the minimum standard wouldn’t be cost effective, permitted or appropriate. Of course this would need to be supported by substantial evidence. It is also true that, as of April 2016, tenants who request to make reasonable energy efficiency improvements, regardless of the property’s existing rating, can’t be refused.
First and foremost, as a landlord you will need to find an accredited person to undertake your EPC assessment. This list exists to help you find an accredited person, or to check the person you are planning to use is accredited. This same Government website will allow you to retrieve an EPC from the records, if it is needed.
From October 2015 it became a legal requirement for landlords to show prospective tenants the EPC for a property upon request. This legislation has now affected the landlord’s rights in terms of terminating a tenancy, should they wish to. A landlord must serve a valid section 21 notice if they wish to terminate a tenancy2, and not producing the EPC has become a clear breach which will prevent a section 21 being served.
Further general rules for EPCs are that the certificate is issued for the property itself, not per tenant or per landlord. However, this becomes slightly different if a tenant sub-lets the property. In this case the responsibility for the EPC lies with the sub-lease holder.
Cost of an EPC assessment
The cost of an EPC is dependent on a number of factors, such as the age, type and size of the property. This of course affects how much energy will be used and how it can vary, and where issues might be found, and hence how much work is required in ensuring a rating is fair and accurate. In general terms, the cost of an EPC assessment can vary from between £45 up to over £1003. Yet it remains an affordable cost given the rewards you can get in terms of rental yield from a 100% occupied property.
What happens in an EPC assessment?
Much like a property survey during the house-buying process, the time it takes to carry out an EPC assessment will vary according to the same above factors that influence cost, but an assessment will generally take around one hour. The accredited domestic energy assessor will require access to all areas of the property, including all rooms, the loft, roof voids, cellars and out-buildings. They will check the condition and performance of heating systems, insulation, lighting, windows and glazing and assess factors that could be influencing their performance.
The assessor will ask you what maintenance systems are in place. A well maintained boiler, for example, will run more efficiently and therefore save you money on energy costs. It may be obvious from a close, visual inspection, but a boiler under a maintenance agreement will be cleaner, in good condition and carry working parts, and hence this will allow burners and fans to operate in an optimal fashion to the design specification. A poorly maintained boiler will have to work harder to produce the same heat and hence you will be paying more for your energy and unnecessarily.
An EPC assessment will check for leaks in pipes, radiators that need bleeding, gaps in insulation and doors or windows that could be letting in cold air or allowing warm air to escape. You could also be asked about your management of thermostats and whether heating is required, or controlled strictly enough, in rooms that are barely or never occupied. The assessment will also take measurements and details about the construction of the property, so you may need this information to hand.
Following the assessment you will receive your EPC and a recommendations report. The report is detailed in such a way that each recommendation will be accompanied by the typical energy saving per year you can expect, in addition to what EPC rating you could receive, should the improvements be made. Unless major renovation work is undertaken your certificate will be valid for 10 years, but you are able to voluntarily apply for a new certificate following the installation of energy efficiency measures.
What is on the EPC?
The A to G rating awarded to a property is clearly defined on the actual certificate, in much the same way that the energy efficiency of white goods is indicated in shops. A series of coloured bands clearly indicates each rating and what has been awarded to your property. The certificate gives prospective tenants a simple visual indication of the property’s energy efficiency and allows them to easily determine the relative financial running costs, should they choose to rent the property.
Also included on the certificate is an estimation of the energy the property potentially uses, fuel costs relative to this, details of potential savings, carbon dioxide emissions, who carried out the assessment and who to contact in the event of a complaint.
Currently, you are not legally obliged to act upon the recommendations made on an EPC, unless your rating is below E and you plan to rent out the property, at least for new tenancies and renewals, and until April 2020 when it will apply to all existing tenancies. So you will be obligated to reach the minimum rating of E if you issue or create a new assured tenancy, including a short-hold, or if you renew or extend an existing tenancy.
Typical recommendations involve cavity wall insulation, using low energy lighting, better use of thermostatic valves for radiators, loft insulation and double-glazed windows. In most cases these are basic home improvement projects that most reputable landlords would look to undertake if they had designs on marketing the property as a good standard, quality and comfortable home.
This generally results in a reciprocal standard of tenants, and as with everything connected to the landlord’s responsibilities towards the EPC, in general terms, it is worth the time and expense of achieving a good EPC rating, because it can be classed as an investment that will pay you back handsomely as a buy-to-let landlord.
1. www.rla.org.uk Minimum Energy Efficiency Standards
2. www.propertyinvestmentproject.co.uk New Section 21 Rules (2015) For Landlords in England
3. www.haart.co.uk What landlords need to know about EPC